Executive Compensation News and Views
Is Europe Heading to Binding Say-on-Pay
On April 9th, the European Commission proposed a broad package of measures to improve shareholder oversight, one being a binding Say-on- Pay (“SOP”) vote on executive compensation. Currently, SOP measures vary country by country and the new rules seek to create a level playing field for all EU members. The proposed measures are subject to a feedback period through spring 2015, leaving plenty of time for changes and preparation by EU public companies. But clearly the sentiment towards executive compensation (as well as director compensation) continues to elicit strong opinions from the EU public, especially with a very weak economy still in recovery. As a result, it is increasingly likely that over the next several years more countries will adopt SOP requirements, or strengthen current measures, regardless of the outcome on the measures proposed by the European Commission.
This is not the first time we have seen binding SOP make waves on the other side of the pond, with the U.K. already adopting such rules, which became effective for financial years ending after October 31, 2013. Countries around the world have SOP votes that are more and less onerous than the advisory vote required by U.S. companies. Below is a summary of Say-on-Pay rules from around the world:
- Australia – Non-binding SOP voting has been in place since 2005, but since 2011 shareholders have had a “two-strike” rule under which, if 25% of shareholders vote against a company’s pay plan at two consecutive annual meetings, the entire board may have to stand for re-election within three months.
- Canada – There is no legislation requiring a SOP vote but the Canadian Coalition for Good Governance recommends that boards voluntarily include an advisory vote on executive compensation at their annual meetings. A large number of Canadian companies (over 120) have adopted an advisory SOP vote.
- France – The revised 2013 edition of the French Corporate Governance Code for Listed Companies includes a recommendation to hold an annual non-binding SOP vote. Any company that does not comply with the voluntary SOP vote is required to explain their rationale in their annual reports.
- Germany – Non-binding SOP vote since 2009. Recently a proposed law that would have required a binding vote starting in 2014 failed to pass the upper house of Germany’s parliament.